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Reminder of “bed and breakfasting” rules

Historically, the term bed and breakfasting (sale and repurchase) of shares referred to transactions whereby someone sold shares one day and bought them back the next morning. This used to have Capital Gains Tax (CGT) benefits by crystallising a gain or a loss but is no longer tax effective over such a short period. The rules changed in 1998 when new legislation introduced special share matching rules. Under these rules there are a number of limitations, including a 30-day waiting period before the shares can be repurchased again.

However, it is possible under certain circumstances to use a modified bed and breakfasting type of arrangement to sell an asset only to buy it back again a short time later. A gain could be created in order to use up the annual exempt amount or a non-resident may 'bed and breakfast' their chargeable assets to establish a higher base cost before they enter the UK tax regime.

Proper consideration should be taken before undertaking such transactions to ensure that all tax aspects have been observed. For example, in order for any bed and breakfast transaction to be effective, there must be a genuine transfer of beneficial ownership of the asset and the share matching rules must be met.